WHEN CIRCUMSTANCES CHANGE AFTER A BUDGET IS CONFINED TO COURT FEES: DECISION TO ALTER BUDGET UPHELD
In Asghar -v- Bhatti[ 2017] EWHC 1702 (QB) Mr Justice Lewis considered an issue in relation to varying a budget that was confined to court fees. The court considered “change of circumstances” – this is also a case that shows the importance, and value, of a prompt and early Part 36 offer.
Earlier in the action the claimant’s costs budget had been confined to court fees because of a failure to file a budget. An application for relief from sanctions had been refused. The trial started but it became clear that it was going to exceed its six day estimate. The trial was adjourned.
THE ORDER MADE WHEN ADJOURNING THE TRIAL
- The order of Nicol J says in relation to costs the following:
“3. The parties are at liberty to apply for a further costs CMC. Any such application by either party to revise their costs budget shall be made to the master.”
The defendant and the claimant applied to revise their budgets on the basis that there would now be an extra six days of trial. That was the matter that the deputy master was dealing with on 12 October. As I have indicated, CPR 3.14, as indeed did Master Leslie’s order, provides that if a party fails to file a budget despite being required to do so, the party will be treated as having filed a budget comprising only the applicable court fees. The question then is: if there is additional work which had not been anticipated at the time, is it then possible to apply to revise a budget in relation that additional work, not the work that should have been but was not originally included in a budget? There are notes in the White Book dealing with this. The relevant note is at
3.14.3. The first paragraph notes that there are several methods which a party may consider if he wishes later to be able to recover extra costs if an order for costs is subsequently made in his favour. Those are then discussed. Then there is a paragraph saying this:
“If a costs management order is made, it is arguable that a party treated as having a budget limited to court fees may, indeed must, seek revisions of it so as to include any additional expenditure made reasonable by developments which could not have been anticipated at the time of their breach of Rule 3.14. Practice Direction 3E, paragraph 2.6 requires parties to revise their budgets in respect of future costs if significant developments in the litigation warrant such revisions. If a costs management order is not made, Practice Direction 44, paragraph 3.7 applies. Under this provision the court may accept that the occurrence of significant developments in the litigation amounts to a satisfactory explanation for a claim for extra costs in respect of those developments.”
The deputy master decided that she would permit the revision of the claimant’s budget in respect of the additional six days of the trial.
THE JUDGE’S COMMENTS ON THE ORDER OF THE MASTER
The trial re-started but settled on the second day when the defendants were given permission to accept the claimant’s offers. The defendants were to pay the claimant’s costs. The defendant appealed the order revising the claimant’s costs budget.
12.I turn then to the two grounds of appeal. As I have indicated, ground one, set out in paragraph 8 of the Notice of Appeal, is a claim that the practical effect of the deputy master’s order was to overturn the costs sanction imposed by Master Leslie. First, in my judgment it is clear that the deputy master did appreciate that she was being asked to alter the position in relation to costs which formed the subject matter of Master Leslie’s order and would in any event have been the position under CPR 3.14. It is correct to say that Master Leslie had refused to make any other order other than that the party was limited to the court costs. It is correct to say that he refused relief of sanctions in relation to that matter. The principle governing that application would be similar to those followed in the case of Mitchell v News Group Newspapers Ltd  1 WLR (see the notes to the White Book at 1.14.2.
13. But the basis of the application before the deputy master was different. It was said that there had been significant developments since the failure to file the original costs budgets. In general terms, the Practice Direction says that is a ground permitting applications for a revision of budgets. In the context of such revisions occurring when there is already a costs order in place reflecting 3.14 of the CPR, the White Book notes envisage that revised budgets may be permitted to deal with the additional costs that were not foreseen and were not anticipated at the time of the failure. In my judgment, if there was a significant development, and if costs budgets were revised to permit the costs relating to the additional matters arising out of that significant development, that would not necessarily undermine the policy underlying CPR Rule 14.
14.Mr Foy QC for the appellants took me to the decision of Coulson J in Murray & Anor v Neil Dowlman Architecture Ltd  EWHC 872, and he took me to paragraph 16 and 17, which deals with the position if a costs budget could later be revised because of mistakes or self-induced inadequacies and expressed the view that that would undermine the purpose of the costs budget regime. This case is different because we are not dealing with the revision of the costs in relation to the original six-day trial dealt with in Master Leslie’s order. We are dealing with a revision arising out of a significant development, namely six days’ extra trial being required and that fact being realised after the failure.
15. Mr Foy submits that in reality all that the deputy master did was decide if there was a significant development, and thereafter she went into the business of revising the budgets. He submits that she did not take into account at all that the revision would subvert the sanction ordered by Master Leslie. There is a complete transcript of the hearing before the deputy master in the trial bundle. It is clear that she did have in mind that this was a case where the events that had happened amounted to a significant development, and she was well aware that she was allowing a later revision because of that significant development and that that was something that was contemplated by the notes in the White Book as being appropriate. There is no authority dealing with the matter, but there is no doubt that the deputy master was aware of the position, and indeed she herself drew attention to the notes in the White Book that I have quoted.
16. In my judgment it was a matter for her discretion as to whether she should allow a revision in the light of the fact that the trial had been adjourned and that it was now listed for twelve days, that is, that there would be an addition of six days’ work. She decided that the extra six days of trial was something capable of being a significant development. She was aware of and decided that it would be appropriate to make a revision of the costs budget in the light of that change in circumstances since the failure.
17. In relation to challenges to discretionary decisions by masters, it is helpful to bear in mind the observations of Lord Fraser in G v G  1 WLR 647 at page 652D to F that an “appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible”. In my judgment the deputy master knew what she was doing in this case. She decided there was a significant development. She decided it would be appropriate in those circumstances to allow a revision of the budget. That does not involve undermining the order of Master Leslie for the reasons that I have
18. For completeness I note that various criticisms are made in the defendant’s skeleton and were advanced today by Mr Foy. He argued that Master Leslie would have still made the order he did in October 2015, even if he had been told that the trial was twelve days, not six days. There are two matters there. Firstly, the matter as it is advanced appears to be trying to argue a different ground of appeal contained in paragraph 12 of the Notice of Appeal, and the appellants do not have permission to argue that ground. But in any event, the question is not in fact what Master Leslie would hypothetically have ordered on 6 October 2015. We know what he ordered. He ordered a six-day trial. He made an order reflecting CPR 3.14. The question before this court is a quite different question: given that events occurred after that failure to lodge a budget, was it open to the deputy master to exercise her discretion to allow a revision of the budgets to deal with that extra work? In my judgment she was entitled to do that, and there is no indication that she erred in the exercise of her discretion…”
THE IMPORTANCE OF THE PART 36 OFFER
The claimant made an early Part 36 which was accepted by the defendant half way through the trial.
This case underlines the importance of prompt and early offers. The claimant may well be able to recover part of the costs because of the provisions of CPR 36.23.
COSTS WHERE THE BUDGET IS CONFINED TO COURT FEES
Cases in which the offeror’s costs have been limited to court fees
36.23.—(1) This rule applies in any case where the offeror is treated as having filed a
costs budget limited to applicable court fees, or is otherwise limited in their recovery of
costs to such fees.
(Rule 3.14 provides that a litigant may be treated as having filed a budget limited to court
fees for failure to file a budget.)
(2) “Costs” in rules 36.13(5)(b), 36.17(3)(a) and 36.17(4)(b) shall mean—
(a) in respect of those costs subject to any such limitation, 50% of the costs assessed
without reference to the limitation; together with
(b) any other recoverable costs.”
CROSS-REFERENCING AND WHAT IT MEANS
This requires a lot of cross referencing.
(1) 36.13(5)(b) is a reference to where the parties cannot agree the liability for costs and where the court, unless it is unjust to do so, order “the offeree do pay the offeror’s costs for the period from the date of expiry of therelevant period to the date of acceptance”
(2) 36.17(3)(a) is a reference to the costs being ordered to be paid by a claimant to a defendant where a claimant fails to beat a defendant’s offer.
(3) 36.17(4)(b) is a reference to costs ordered to be paid by the defendant to a claimant when the defendant fails to beat the claimant’s offer.
It means, in essence, that a party subject to a nil costs budget can still recover 50% of their fees for the period after a Part 36 offer if the offer is not beaten.
A GOOD PART 36 OFFER MEANS YOU COULD STILL GET HALF YOUR COSTS
This is a clever rule. A party, on a nil budget, could still get half their costs if they make a realistic Part 36 offer and their opponent fails to beat it.This does not undermine the purpose of the sanction (only half the costs can be recovered). It still gives both parties an incentive to settle.
Further, and curiously, there are arguments that this puts the paying party at a potential disadvantage. If the costs are budgeted then the paying party will have some idea of the likely costs. A party litigating against someone with a nil budget, but where there is a Part 36 offer which poses a risk, will find out the figures on assessment. Albeit they are only liable to pay half.
- Lord Chancellor gets a bonus: the powerful results of a Part 36 offer.
- Costs should not normally be reduced when a a claimant beats their own Part 36 offer.
- Increased interest and costs after claimant beats it own Part 36 offer: judgement for three times more than claimant’s offer.